There have been a number of decisions in both the Federal Court of Australia and the Supreme Court of Victoria where the Court has been prepared to require that non party class members produce information to the parties and the court to assist in the determination of issues. Principal to the court's consideration as to the ambit of its power to order group members to take a more active role in the litigation is s33ZF found in Part IVA of the various Court Acts. It provides:
In Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328, Beach J provides clear analysis of the meaning and effect of s33ZF and when it can be utilised.
Background
In 2013 and 2014 the Australian Securities and Investments Commission investigated conduct of Newcrest, which resulted in the imposition of pecuniary penalties. In legal proceedings ASIC alleged that Newcrest had engaged in two contraventions of s674(2) of the Corporations Act 2001 relating to disclosure to the ASX of Newcrest's total gold production and capital expenditure for the 2014 financial year. ASIC prosecuted Newcrest in respect of the alleged contraventions and Newcrest admitted each contravention and consented to various declarations being made and penalties imposed for the purpose of the ASIC proceedings.
The applicant commenced a class action on its behalf and on behalf of certain investors who had signed a litigation funding agreement with Comprehensive Funding Legal LLC, alleging various breaches by Newcrest of its continuous disclosure obligations between 2012 and 2013, and misleading and deceptive conduct in contravention of s 1041H Corporations Act and s12DA of the Australian Securities and Investments Commission Act 2001. The applicant represents those persons who:
- at any time during the period from 13 August 2012 until the close of trading of the ASX on 6 June 2013 (the class period) acquired an interest in securities traded of the ASX under the designation "NCM" (Newcrest shares); and
- suffered loss or damage by or resulting from the conduct of Newcrest pleaded in the ASOC.
The applicant is a small investor and the trustee of two trusts: a family trust and a self managed superannuation fund. The trustee held Newcrest securities on behalf of the family trust at the beginning of the class period, purchased securities for the superannuation fund in late May 2013 and sold all of the shares it held for both trusts on 25 June 2013. The total shareholding was around 9,400 shares.
The Application
Newcrest applied to the court for an order that the individual claims of two institutional shareholder group members, who were among Newcrest's top 20 shareholders at the relevant time, be tried at the first stage trial of the proceeding involving the applicant's individual claim and the common issues. Newcrest emphasised the evidentiary benefits and assistance for settlement. Newcrest relied on the broad power of the court to make an order in the proceeding as provided for by s33ZF. It contended that the applicant's claim provided limited cover of issues in the proceeding and was not truly representative of investors in Newcrest.
The applicant accepted that s33ZF empowered the court to make the type of order being sought by Newcrest, providing that the statutory test was satisfied and that it was an appropriate exercise of discretion, both of which the applicant submitted had not been established.
The Decision
His Honour considered the concluding words of the statute and interpreted s33ZF as requiring him to consider whether he thought that the order sought by Newcrest is appropriate, to ensure that justice is done in the proceeding. He noted it was not sufficient for him to think it "merely convenient" nor was it a "licence to permit His Honour to impose his own expansive case management philosophy". Rather the court must be satisfied that any order made ensures that justice is done in the proceeding to satisfy the statutory test.
In coming to his decision to refuse the application, His Honour accepted that other courts had made orders requiring group members to take an active role. That conduct included compelling discovery and the delivery of particulars of loss, provision of contribution towards security for costs and provision of group member identities. But the context of the examples was important and the mere fact that it was possible and justifiable to make such an order, did not support the proposition that whenever the court considered it was convenient to do so that it should.
In submitting that the group members already accepted that they could be required to be a more active participant in the litigation, Newcrest relied on the terms of the funding agreement between the group members and the funder, which required them to cooperate in the litigation if given a direction by Slater & Gordon. His Honour while accepting that the provisions of the funding agreement may facilitate a more active role did not consider that the terms added anything to the statutory test of ensuring justice is done in the proceeding.
His Honour also accepted that the role and behaviour of the institutional investor was relevant to the dispute and common questions and his reasons provide a detailed analysis in support of why the evidence is important in a shareholder class action. However, he considered that it might be possible for the court to determine issues in the case without the evidence of institutional investors and if it was necessary then the applicant would need to lead the relevant evidence, or both it and the group would be detrimentally affected. It was not for the court to impose nor for Newcrest to seek to compel.
Beach J noted that the applicant had proposed a particular approach to the expert evidence relevant to a quantitative assessment of the impact of the relevant representations and non-disclosure contraventions and a qualitative assessment of the material information to the Newcrest market of investors. Whether the applicant's forensic choice was sound was not for the court to say and His Honour accepted that the choices of evidence to be called and risks assessments to be made was a decision for the parties and not the Court. Such matters are "not for the Court to impose in form or to conduce in substance if not in form. They are certainly not for one party to impose on the other directly or indirectly via the s 33ZF mechanism or through the likely effect of any order that might be made under s 33ZF."
While accepting that evidence from institutional investors is relevant to the common issues, such evidence was not necessary to establish the applicant's individual claim or one or more of the common issues.
His Honour was not convinced of the Newcrest submission that the provision of institutional sample investors could potentially facilitate earlier settlement after the first stage trial. He was persuaded that whatever the perceived advantages of adjudicating on a range of individual cases to facilitate a post first stage trial mediation process, that was not sufficient to justify the requested exercise of power under s 33ZF. His Honour also considered that the sample of two institutional investors was not sufficiently diverse to adjudicate on. Beach J distinguished this scenario from those proceedings where discovery and particulars has been ordered of individual group members' claims prior to the first stage trial in order to achieve an overall settlement before trial (Thomas v Powercor and Regent Holdings v State of Victoria). He considered such pre-trial disclosure of sufficient individual data to facilitate an overall pre-trial settlement is a different context than what was proposed by Newcrest with two institutional investors at the first stage trial to facilitate settlement thereafter.
Ultimately His Honour considered that there was not substantial prejudice to Newcrest in refusing the orders but rather considered that if there was a lack of institutional investor participation, it was more likely to prejudice the applicant than Newcrest.
Finally His Honour noted that even if he did think it appropriate to make such an order he would not do so until after the opt out date had passed because only then could the parties know which institutional investors were part of the group. Were such an application to be made at that time, His Honour considered it would be appropriate to permit the particular investor an opportunity to be heard before making final orders, against their will.
Conclusion
Beach J's decision is particularly helpful for practitioners advising their clients on the circumstances which need to be satisfied before the court will make an order under s33ZF. Where the parties do not agree to the appointment of sample group members to determine particular issues, it is less likely that the court will impose an additional cost burden on the group members, where the applicant has adopted a particular forensic approach. Rather the court has made it clear that the forensic and strategic decision as to the evidence is for the legal advisers and the applicant. If their approach turns out to be incorrect, then the representatives and group members may suffer prejudice but that is not for the courts to pre-judge.
